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Economic growth is the only show in town, but where is it? And where does it come from?
In this instalment of Week in Business, City AM editor-in-chief Christian May is joined by the author and political strategist Matthew Elliott to discuss exactly this.
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0:00
Economic growth. It's the only show in
0:02
town. But where is it? Where does it
0:04
come from? Well, today I'm joined by
0:06
somebody who thinks he's found some
0:08
answers. Welcome to the week in business
0:09
with me, Christian May.
0:14
Matthew Elliot, Lord Elliot, author, one
0:17
of a handful of authors of this book,
0:20
Prosperity Through Growth.
0:24
Tell us how urgent is this task?
0:27
It's really urgent to get growth. I
0:29
mean, if you look at our um GDP per
0:31
capita, our living standards, they're
0:33
still below where they were pre-COVID.
0:36
So, we haven't actually made up for the
0:37
COVID um dip. So, it's really crucial
0:40
now. And we did some forecasting for the
0:42
book. Um and we actually found out that
0:45
if we continue as we are on the current
0:47
trajectory, we're going to see the UK
0:49
fall behind um Lithuania very soon, fall
0:52
behind Poland by 2034, and even fall
0:55
behind Turkey by 2043. So something
0:58
needs to be done to keep our top spot at
1:00
the world table.
1:01
But you say that we've got problems
1:02
postco. This goes way back, doesn't it?
1:04
I mean since 2008 at least. And I'm sure
1:08
people can draw back even further than
1:10
that. But we've had a real problem with
1:12
the level of growth in this country
1:14
which has barely ticked above sort of
1:16
2%. What's the kind of level of of solid
1:19
GDP growth in a year that that we would
1:22
feel that would really imply that our
1:25
engines were firing on all cylinders?
1:27
What should we be aiming for?
1:28
Well, if you go back to the 1980s and
1:30
1990s, we were going out about um two
1:33
two and a half 3% a year. And the key
1:37
ingredient there is following what we
1:38
call the north star of economic growth
1:40
in there. And one of the co-authors is
1:42
Dr. Arfa Lafer of the Laffer Curve fame.
1:46
And he has these five ingredients for a
1:48
growing economy.
1:50
Low tax, low government spending, smart
1:53
regulation, free trade, and sound money.
1:56
And if you get all of those ingredients
1:58
right, whether the the UK in the 1980s
2:00
and 90s or the US or indeed other
2:03
countries who followed that north star,
2:05
you get fast growth.
2:06
Okay. So there's five key ingredients.
2:08
We don't have time today to go through
2:09
them all, but perhaps another time, but
2:10
let's pick up on a couple. You talked
2:12
about government spending. Yes.
2:13
We've had the figures out just this
2:14
week. This confirmed what we've long
2:16
known. We're borrowing about a hundred
2:18
billion pounds this year. We're paying
2:21
about a hundred billion on our debt
2:23
interest on top of that.
2:26
People look back at what they call
2:27
austerity under previous conservative
2:30
administration, George Osborne, David
2:32
Cameron. Are we saying that we just need
2:34
to enter a period of belt tightening or
2:36
do we need some more fundamental reform
2:38
to what the state does and how it's
2:40
funded?
2:40
I think we need some fundamental reform.
2:42
You can't have a situation where um
2:44
government spending is running at um you
2:46
know roughly 45% of GDP and we're
2:48
bringing in 40% of GDP in terms of tax.
2:50
You can't have that level of um deficit
2:52
going on year after year. And we look at
2:54
things like welfare spending for example
2:56
in the book in our 247 growth plan. And
2:59
we basically say freeze it in real terms
3:01
from the 2019 levels. So for example,
3:04
you could do that quite easily by for
3:06
example bringing in bringing back
3:08
in-person consultations when you get new
3:10
benefits. at the moment is on the
3:12
telephone, very open to fraud, bring
3:14
back in-person consultations with a
3:16
trained medic and you soon see the
3:18
welfare bills go down.
3:19
Okay. You say you could do it quite
3:20
easily, but this government tried to
3:23
shave 5 billion quid off the uh vast
3:26
welfare bill not that long ago and their
3:28
own MPs said, "No, that's not what we
3:30
came into politics to do. We think that
3:32
she's going to try and do something
3:33
around welfare again in the uh budget
3:35
next month." But you're not talking
3:37
about, you know, three billion here, two
3:39
billion here, are you? you if the
3:40
welfare bill has is is is gone up I
3:43
think sort of 40 odd billion in real
3:45
terms over the last two years um you're
3:47
obviously talking about something much
3:48
more fundamental than just trying to
3:50
rein in that increase I mean the
3:52
government came in with their plan of
3:54
having you know growth as the number one
3:56
priority and when they announce the
3:57
manifesto they're going to say wealth
3:59
creator will be center of um you know
4:00
government that really hasn't happened
4:03
for the book we spoke to um five former
4:05
prime ministers both Tory and Labour and
4:08
nine former chancellors to get their
4:10
take on the politics of growth. How do
4:11
you implement a progrowth plan? And what
4:14
they all said was basically you need to
4:16
have that clear plan ahead of coming
4:17
into office
4:18
which of course Labour didn't. They they
4:20
had very little plan
4:21
which is really disappointing. But go
4:22
back to the 1990s when Tony Blair came
4:25
in to his credit Tony Blair Gordon Brown
4:27
had that clear plan of basically
4:29
matching Ken Clark spending plans
4:31
bringing in quite a minimal minimum wage
4:34
if you like making the banking
4:35
independent and allowing the city to
4:37
flourish and really drive the UK
4:39
economy. That was a plan. I wish this
4:41
government had a plan but it's not too
4:42
late.
4:42
So we talked a little bit about um
4:44
government spending. Let's talk about
4:45
tax as well, which I know is not an area
4:47
you spent a vast part of your career
4:49
agitating on. Uh 40 billion quid in tax
4:52
rises in Rachel Ru's first budget. We're
4:54
expecting 20 odd billion, if not more uh
4:56
in the upcoming budget. She says it's
4:58
going to be focused on the wealthy. Uh
5:00
last year's was focused very much on
5:02
business. Are we just on this escalator
5:05
of ever higher taxes to fund an ever
5:07
bigger state? We can't we just can't get
5:09
off it. Well, if the government tries to
5:12
raise taxes in the budget, they won't
5:13
get the revenues they're expecting
5:15
because of course people are now highly
5:17
mobile. And one of the things other
5:18
things we look into which I know CCM has
5:20
talked a lot about is the number of
5:22
millionaires and high net worths now
5:24
leaving the country. it's very easy to
5:26
relocate to uh Milan and pay €200,000
5:29
euros a year to live there or Portugal
5:31
or Dubai and all these other cents are
5:34
attracting the very entrepreneurs and
5:36
investors and wealth creators who we
5:38
need here in the UK to drive the UK
5:40
economy.
5:40
Okay. So, I was just looking. You spoke
5:43
to people from the left and the right.
5:45
Um, prime ministers, chancellors. You
5:47
spoke to Andy Haldane, a very thoughtful
5:49
guy. You spoke to Gus O'Donnell, former
5:51
top civil servant. You spoke to Jamie
5:53
Diamond. He's he's always got a few
5:54
things to say.
5:56
What did they all have anything in
5:57
common? And did any of them surprise you
5:59
with with their own thoughts or
6:00
reflections?
6:02
I would say that one key thing they all
6:03
had in common was that something needed
6:06
to be done. And actually, the um safer
6:08
option was to do something. If we carry
6:10
on this current trajectory, the current
6:12
path of decline and sort of all fighting
6:15
over, you know, rising populations,
6:17
growing smaller pie, if we keep on that
6:19
fighting, that's the less safe path. So,
6:22
we need to go for growth. We need a
6:24
growth plan as as a country. We need to
6:26
join together both left and right to
6:27
make sure that plan is in place to keep
6:29
the UK at the top of the table.
6:31
Well, I can tell you's going to give
6:33
this a decent review. Um, and it's had a
6:36
lot of press and and a lot of stories
6:38
have come out of it and it's generated a
6:39
lot of debate. I was mildly tickled to
6:42
see that the Financial Times reviewed it
6:43
and described it as a curious collection
6:45
of old ideas. What do you make of that?
6:48
Well, they say all publicity is good
6:49
publicity. So, we thank the FD for their
6:51
review. I would note they gave a very
6:54
glowing review, Marty Wolf did, to um
6:56
Thomas Piky's book Capital. And you
6:58
might actually say that that book is
7:00
actually behind the economic hole we're
7:03
now in. that was behind the modern money
7:05
theory, the big tax rise on the rich. So
7:08
the the whole is down to his book in
7:10
many ways. So I hope they will look at
7:12
our book fresh and actually realize if
7:14
we want to get on a good path in the UK,
7:16
we need some fresh ideas.
7:17
All right, fresh ideas. This book's full
7:19
of them. Thank you very much, Matthew
7:20
Elliot. Thanks for coming on the weekend
7:22
business.
7:22
Thank you. Now, here's a postcript for
7:25
you. There's one or two hangovers in the
7:27
city office today, though not with me.
7:29
Uh, City A threw an extraordinary party
7:32
last night to celebrate the Toast the
7:34
City Awards, the best restaurants, bars,
7:36
coffees, and cocktails in the square
7:38
mile. It was an incredible night. And it
7:39
reminds me to point out that uh one of
7:42
the restaurants nominated, I think last
7:44
night for an award uh is the only
7:45
Michelin starred seafood restaurant here
7:47
in the city, Angler. Uh, and at
7:49
citywinners, citywinners.co.uk, you can
7:52
enter to win a table and an
7:54
extraordinary feast and experience at
7:56
Angler Michelin star seafood restaurant.
7:57
So, have a look at that. And also, I
7:59
think it's not too late to point out
8:00
that you can still get your hands on
8:01
those VIP hospitality tickets for
8:04
England, Australia at Twickenham. That's
8:06
citywinners.co.uk.
8:10
Go to citywinners.co.uk.
8:13
Good luck.
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